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QUESTION

I have all but two parts correct: I used tutor rocky4ever template and it was great, but I can't seem to get a)cash flow time 0 and f) IRR and NPV to...

Market:

7 percent expected market risk premium; 5 percent risk-free rate.

DEI uses G.M. Wharton as its lead underwriter. Wharton charges DEI spreads of 8 percent on new common stock issues, 6 percent on new preferred stock issues, and 4 percent on new debt issues. Wharton has included all direct and indirect issuance costs (along with its profit) in setting these spreads. Wharton has recommended to DEI that it raise the funds needed to build the plant by issuing new shares of common stock. DEI's tax rate is 35 percent. The project requires $1,100,000 in initial net working capital investment to get operational. Assume Wharton raises all equity for new projects externally.

a. Calculate the project's initial Time 0 cash flow, taking into account all side effects.Assume that the net working capital will not require flotation costs. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Cash flow         $  

b. The new RDS project is somewhat riskier than a typical project for DEI, primarily because the plant is being located overseas. Management has told you to use an adjustment factor of +2 percent to account for this increased riskiness. Calculate the appropriate discount rate to use when evaluating DEI's project. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Discount rate           %

c. The manufacturing plant has an eight-year tax life, and DEI uses straight-line depreciation. At the end of the project (that is, the end of Year 5), the plant and equipment can be scrapped for $3.7 million. What is the aftertax salvage value of this plant and equipment? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567.)

Aftertax salvage value         $  

d. The company will incur $6,000,000 in annual fixed costs. The plan is to manufacture 13,000 RDSs per year and sell them at $10,400 per machine; the variable production costs are $9,000 per RDS. What is the annual operating cash flow (OCF) from this project? 

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